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The Securities and Exchange Commission (SEC) has voted to make proposed amendments to its reporting procedures applicable to SEC-registered investment advisers to private investment funds.
Through these changes to Form PF, the confidential form that private fund advisers must use to report their activities, the SEC aims to improve the data available to the Financial Stability Oversight Council (FOSC) to monitor threats to systemic risk and its own ability to oversee the activities of private funds and their advisers.
These proposed amendments will increase the data points that large hedge fund advisers must report, including additional information relating to investment exposures, borrowing and counterparty exposure, market and currency exposure, central counterparty clearing, investment performance by strategy, and a range of other metrics.
This proposal, advanced jointly by the SEC and the Commodity Futures Trading Commission (CFTC), is designed to provide better insights to financial supervisors into the operations and strategies of qualifying hedge funds and their advisers, while boosting data quality and consistency.
These changes will require additional basic information about investment advisers and the private investment funds they advise. Again, the goal is to put the FSOC in a better position to monitor private fund strategies and operations that may contribute to systemic risk, while minimising reporting errors and improving data quality and comparability.
Thirdly, these proposed amendments to the reporting regime will require investment advisers to share additional information relating to hedge fund strategies, including investment strategies, level of counterparty exposure, and trading and clearing procedures employed by the fund.
The SEC has opened public consultation on the proposal, which will extend for 60 days after the proposals are published on the SEC website, SEC.gov, or 30 days after they are published in the Federal Register, whichever is longer.
Commenting on the proposed changes, SEC chair Gary Gensler says: “In the decade since the SEC and CFTC jointly adopted Form PF, regulators have gained vital insight with respect to private funds. Since then, the private industry has grown in gross asset value by nearly 150 per cent and has evolved in terms of its business practices, complexity, and investment strategies.”
“I [support] the proposal because, if adopted, this would improve the quality of the information we receive from all Form Pf filers, with a particular focus on large hedge fund advisers. That will help protect investors and maintain fair, orderly and efficient markets,” says Gensler.
Jennifer Wood, global head of asset management regulation at private fund trade body The Alternative Investment Management Association (AIMA), comments: “The proposed changes of this magnitude will require substantial retooling of reporting systems operated by investment advisers and other fund service providers involved in Form PF reporting, including those operated by many AIMA members.
“With this extensive set of changes following on the heels of the other significant set of changes to Form PF proposed earlier this year, there is a not inconsiderable risk that market participants are facing multiple updates to their reporting systems next year if the final rules related these proposals do not come out together."
“Given the proposal discussed is jointly owned by the SEC and the CFTC, we will need to assess how these new obligations will affect joint registrants,” says Wood.
